blue oceans capital investment strategies
TRANSCRIPT
Blue Oceans Capital Investment Strategies
October 2020
3
Disclaimer 4
The MDA Structure and HLK’s responsibilities 5
About HarbourSide 6
About Blue Ocean Capital 7
Blue Oceans Capital Investment Strategy – Retail 8
Blue Oceans Capital Investment Strategy – Wholesale 10
Fees and costs 12
Example of Retail fees 14
Example of Wholesale fees 15
Additional explanation of fees and costs 16
How are management fees calculated 17
Commission and other fees 17
Taxation 18
A service as individual as you 18
Risk 19
Opening of accounts and withdrawal of funds 23
Withdrawal of funds and closing account 24
Contact HarbourSide Back cover
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DisclaimerThis Investment Program (IP) has been prepared by HarbourSide Capital Pty Ltd (HSC) (ACN 166 765 537) being a Corporate Authorised Representative (AFSR 000 448 907) of HLK Group Pty Ltd (ACN 161 284 500) which holds an Australian Financial Services Licence (AFSL 435746).
This IP is an important document that should be read before making a decision to invest with HLK Group and HarbourSide Capital. This IP forms part of the MDA Contract. If you sign the MDA Contract, your portfolio under the MDA Contract will be established and managed in accordance with the MDA Contract, which incorporates this IP.
This document does not and is not intended to contain any recommendations or statements of opinion or advice. In any event, the information in this document does not consider any individual person’s objectives, financial situation or particular needs. This IP is not a Product Disclosure Statement (PDS) for the purposes of Part 7.9 of the Corporations Act 2001.
Whilst every effort is taken to ensure the information in this document is accurate, its accuracy, reliability or completeness is not guaranteed. To the extent permitted by law, HSC accepts no liability and accepts no responsibility for any loss, liability, damage or expense which results from any act or omission of any person relying on the information provided in this document.
This document may contain external links of a mixture of results based on real and simulated or hypothetical performance that have certain limitations. Unlike the results shown in an actual performance record, such results do not represent actual trading. Also, because such trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity.
Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any investment will or is likely to achieve profits or losses similar to those being shown using simulated data.
Information in this document may change from time to time. A paper copy of the updated information will also be available upon request.
We may also be required to amend this document as a result of certain changes, in particular where the changes are materially adverse from the point of view of a reasonable person deciding to invest via the HLK Group and HarbourSide Capital MDA Service.
HLK cannot provide the HLK Group’s MDA Service to you unless a valid application form has been completed by you and received by HSC and then provided to HLK Group.
All amounts in this IP are given in Australian dollars unless otherwise stated.
The MDA structureManaged Discretionary Accounts, or MDAs, are a more efficient and direct model of managing a clients’ investments as compared to the traditional fund management structure.
The client’s account is opened directly with a reputable executing broker partner. HSC has chosen to partner with Interactive Brokers Australia Pty Ltd (AFSL 245574) as our preferred executing brokers.
By entering into the MDA, the client is giving HLK Group and HarbourSide Capital permission to trade the account on their behalf and deduct fees associated with the MDA service. The trades will be directed by the underlying quantitative model of the respective MDA.
MDAs in Australia are regulated by the Australian Securities & Investments Commission (ASIC) and the provision of MDA services must meet certain conditions of the Corporations Act (2001), Regulatory Guide 179 and ASIC Corporations (Managed Discretionary Account Services) Instrument 2016/968. MDAs are managed by a Managed Discretionary Account Provider, which in this case is HLK Group, who holds, and operates under, an Australian Financial Service License (AFSL) to provide MDA services.
The Provider has appointed HSC as its corporate authorised representative to provide general advice to you and deal in MDA service.
HLK’s responsibilities under the MDA ContractHLK will be responsible to you for:
(a) the functions that it is contracted to perform under the MDA Contract; and
(b) compliance with:
(i) the requirements of ASIC Legislative Instrument 2016/968;
(ii) the MDA contract, including this Investment Program (subject to where you have agreed in writing to a variation); and
(iii) any representations included in the Financial Services Guide provided to you with this Investment Program.
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About HarbourSideHarbourSide Capital is an Australian based investment company authorised to provide Managed Discretionary Account services to clients. A Managed Account (MA) is just what it says – an investment portfolio that is managed for a client by a professional manager who makes and actions investment decisions based on the client’s stated investment strategy and/or objectives.
Unlike managed fund investors, the portfolios of HarbourSide Capital’s MA clients are not pooled with the money of other clients, they always remain separate and client portfolio assets are managed on an individual basis.
HarbourSelect is a direct to client multi-asset investment platform that provides a comprehensive range of investment solutions. We are fully regulated by ASIC and provide full transparency and an automated advice process.
Our Service Includes:l Automated limited advice processl Construct your own portfolio or use one of ours l Full transparency l Client portal to monitor your investmentsl Regular reports
l Yearly tax statements provided by the executing broker.
About Blue Oceans CapitalBlue Oceans Capital is a sustainable investment manager driven to achieve exceptional results with meaningful purpose through dedication to uncovering truth and applying our understanding of what is known, not what is forecasted.
We identify investments by first looking for sustainable business models that exhibit characteristics of defensive revenue streams with long-term futures as based on our understanding of structural industry changes and macro-economic shifts.
We then apply our internally developed processes of fundamental analysis to assess the financial viability and scalability of the business model, and to enable us to compare the quantitative and qualitative aspects of one opportunity to another.
We specialise in finding small cap investments that exhibit rapidly scalable business models with global reach and high quality environmental, social and governance (ESG) factors. We only invest in businesses that have an exceptional financial record and where we believe our analysis capability can be confidently applied.
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opportunity manually. This means understanding the business model of 1000’s of companies. In this way we find the most attractive business models first and calculate valuation second, the reverse order of most investment managers.
In this way we know we are aware of all outstanding business models in our universe as we have looked at all of them. We do this every quarter ensuring our database is current.
Blue Oceans Capital Investment Strategy – RetailObjective
The Blue Oceans Capital Retail Strategy provides access to high quality, sustainable investments whilst providing solid returns. It does this through a mixed allocation to both the Blue Oceans Capital strategy and a group of three high-performing, sustainable, exchange traded funds or ETFs. This retail strategy aims to outperform the market whilst smoothing out the high volatility that comes with the Blue Oceans Capital strategy.
Methodology
AllocationThe portfolio allocates up to 50 percent in three sustainable ETFs with the remainder allocated to the Blue Oceans Capital portfolio. The three sustainable ETFs include:
l https://www.vaneck.com.au/funds/esgi/snapshotl https://www.betashares.com.au/fund/global-sustainability-leaders-etfl https://www.betashares.com.au/fund/australian-sustainability-leaders-etf
The remaining allocation to the Blue Oceans Capital Strategy is a concentrated portfolio typically containing only 8 to 10 high-growth companies with high-quality sustainability factors.
SustainabilityThe Blue Oceans Capital Retail Strategy invests in sustainable companies with high ESG standards. In regards to the allocation to the ETFs, these funds have been chosen due to their exceptional performance in ESG ratings. In regards to the Blue Oceans Capital Strategy, we don’t invest in any company involved in polluting commodities, weapons or defence, gambling or tobacco, or any media harmful to psychological well-being.
We conduct in-depth sustainability analysis on each of our investments using guidelines set by the United Nations. We promote sustainability through our memberships to both The United Nation Finance Initiative and The United Nations Principles for Responsible Investment.
Long-term HoldingsWe are long-term holders of our investments only selling if material changes occur that threaten the business model of our investment. Short-term market movements don’t concern us.
Manual Approach to ScreeningIn regards to the portfolio allocation to the Blue Oceans Capital Strategy, when looking for new investment possibilities we search through every high-growth
Investment Structure Managed Discretionary Account
Drawdown Level Notification N/A
MDA Provider HLK Group Pty Ltd
MDA Investment Manager HarbourSide Capital Pty Ltd
MDA Investment Adviser William Simpson - Blue Oceans Capital
Executing Broker & Custodian Interactive Brokers Australia Pty Ltd
Account Type at Executing Broker Standard Account with Tiered Rate Pricing at Interactive Brokers Australia
Investment Universe Cash and securities listed on global stock exchanges
Leverage No
Minimum Investment AUD 20,000
Suitable Investor Profile This strategy suits Balanced, Assertive or Aggressive risk profiles. You should only consider investing in this strategy if:
l you have carefully read all of this investment program;
l you are a Balanced, Assertive or Aggressive investor with a 5-7 year investment horizon;
l you look for an investment which aims to provide capital growth by investing in company shares listed on global stock exchanges;
l you understand and are comfortable with the risks involved in this investment strategy – refer to SIGNIFICANT RISKS for further details;
l you understand the fees associated with the investment;
l you have considered personal financial product advice to determine whether an investment in this strategy is appropriate for you;
l you have considered the potential benefits and risks involved in this strategy having regard in particular your investment needs and financial circumstances.
The suitable investor profile provides certain features (e.g. investor’s risk profile & suggested investment
timeframe) of a typical client who is suitable to an MDA implementing the investment strategy. It is
merely an indication and does not contain any personal advice. You should seek personal advice in
regards to your suitability of the MDA service and regularly review your investments.
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high-growth opportunity manually. This means understanding the business model of 1000’s of companies. In this way we find the most attractive business models first and calculate valuation second, the reverse order of most investment managers.
In this way we know we are aware of all outstanding business models in our universe as we have looked at all of them. We do this every quarter ensuring our database is current.
Blue Oceans Capital Investment Strategy – WholesaleThe Blue Oceans Capital Wholesale Strategy is the same as the retail strategy only without allocation to ETFs. It provides access to the high-performing Blue Oceans core strategy that is a concentrated portfolio of direct equity investments in high-growth, sustainable companies.
As such, the portfolio experiences significant volatility at times and so we invite sophisticated investors willing to ride out short-term market movements with us whilst enjoying outperformance over the long-term.
Objective
The Blue Oceans Capital Wholesale Investment Strategy aims to invest in sustainable companies while achieving annualised portfolio growth in excess of 15% per annum annualised over a 5 year period. Our analysis aims to uncover investments that will return 15% or higher.
To date those investments have performed significantly higher but we cannot expect that performance will continue over long time-scales. It is appropriate that investors set reasonable expectations of performance and we are confident we can achieve growth in holdings of 15% per annum as annualised over a 5 year period.
Methodology
SustainabilityThe Blue Oceans Capital Wholesale Strategy invests in sustainable companies with high ESG standards. We don’t invest in any company involved in polluting commodities, weapons or defence, gambling or tobacco, or any media harmful to psychological well-being. We conduct in-depth sustainability analysis on each of our investments using guidelines set by the United Nations. We promote sustainability through our memberships to both The United Nation Finance Initiative and The United Nations Principles for Responsible Investment.
ConcentrationThe portfolio is concentrated, typically holding 8 – 10 of the best investment opportunities we are aware of.
Long-term HoldingsWe are long-term holders of our investments only selling if material changes occur that threaten the business model of our investment. Short-term market movements don’t concern us.
Manual Approach to ScreeningWhen looking for new investment possibilities we search through every
Investment Structure Managed Discretionary Account
Drawdown Level Notification N/A
MDA Provider HLK Group Pty Ltd
MDA Investment Manager HarbourSide Capital Pty Ltd
MDA Investment Adviser William Simpson - Blue Oceans Capital
Account Type at Executing Broker Standard Account with Tiered Rate Pricing at Interactive Brokers Australia
Executing Broker & Custodian Interactive Brokers Australia Pty Ltd
Investment Universe Cash and securities listed on global stock exchanges
Leverage No
Minimum Investment AUD 50,000
Suitable Investor Profile This strategy suits Aggressive risk profiles. You should only consider investing in this strategy if:
l you are a wholesale investor as defined by the Corporations Act. 2001 and have carefully read all of this investment program;
l you are an Aggressive investor with a 5-7 year investment horizon;
l you look for an investment which aims to provide capital growth by investing in company shares listed on global stock exchanges;
l you understand and are comfortable with the risks involved in this investment strategy – refer to SIGNIFICANT RISKS for further details;
l you understand the fees associated with the investment;
l you have considered personal financial product advice to determine whether an investment in this strategy is appropriate for you;
l you have considered the potential benefits and risks involved in this strategy having regard in particular your investment needs and financial circumstances.
The suitable investor profile provides certain features (e.g. investor’s risk profile & suggested investment
timeframe) of a typical client who is suitable to an MDA implementing the investment strategy. It is
merely an indication and does not contain any personal advice. You should seek personal advice in
regards to your suitability of the MDA service and regularly review your investments.
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Type of Fee or Cost Amount
Blue Oceans Capital StrategiesRetail
Moderately ConcentratedWholesale
Ultra Concentrated
Fees when your money moves in or out of your Managed Account
Establishment Fee: The fee to open your investment.
Nil Nil
Contribution Fee: The fee on each amount contributed to your investment.
Nil Nil
Withdrawal Fee: The fee on each amount you take out of your investment.
Nil Nil
Termination Fee: The fee to close your investment.
Nil Nil
Annual Management Costs
Account Management Fee – Charged Daily: The account service charges
0.28% p.a 0.28% p.a
Investment Management Fee – Charged Daily: The fee your investment/portfolio manager charges
0.72% p.a. 0.72% p.a.
Performance Fee – Charged Quarterly: To ensure returns to HarbourSide Capital are based upon performance.
Nil Nil
Annual Flat Fee – Charged Quarterly: $330 pa $330 pa
Indirect Fee (ETF MER) 0.24% Nil
Commission: The remuneration and benefits received from trading to HLK Group and its authorised representative HarbourSide Capital as introducing brokers
HarbourSide Capital does not receive any commission nor request any mark-up.
Other Service Fee: The service fee charged by HarbourSide Capital when facilitating currency exchange of account base currency
0.5% of transaction value per currency exchange transaction. HarbourSide Capital will submit a manual withdrawal request for client’s approval
Other costs charged by executing broker
1. Buy-Sell Spread which is the difference between the amount required to acquire a financial product at the relevant time and the amount that would be obtained on its disposal at that time.
2. Account Service Fee charged by executing brokers such as costs for executing trade transactions. The above fees or costs will be automatically deducted from client account as they are incurred. For details, please refer to Product Disclosure Statement provided by the executing brokers.
Management Fee is Payable: Percentage of net liquidation value applied on a daily basis.
Performance Fee is applied to the mark-to-market P&L (positive or negative) at the end of each quarter. Any changes made to the specified percent during a period will only be applied on a forward looking basis and will not be applied retroactively. If at the end of the billing period the accumulated fee calculation is negative, no fee will be charged.
The billing period will be Quarterly as of 3/31, 6/30, 9/30, and 12/31. Fees will be posted 10 days after the close of a quarter. This means that the Performance Fee will not apply to any quarter in which a trading loss is sustained.
Fees and Other Costs
Did you know?
Small differences in both investment performance and fees and costs can have a substantial impact on your long-term returns.
For example, total annual fees and costs of 2% of your investment balance rather than 1% could reduce your final return by up to 20% over a 30 year period (for example, reduce it from $100,000 to $80,000). You should consider whether features such as superior investment performance or the provision of better member services justify higher fees and costs.
You may be able to negotiate to pay lower contribution fees and management costs where applicable. Ask the fund or your financial adviser.
To find out more
If you would like to find out more, or see the impact of the fees based on your own circumstances, the Australian Securities and Investments Commission (ASIC) website www.moneysmart.gov.au has a managed funds fee calculator to help you check out different fee options.
The information in the following table is required by law and is designed to help you better understand the fees and costs associated with the Managed Accounts and the Strategies.
This table shows fees and other costs that you may be charged. These fees will be deducted from your Managed Account. You should read all of the information about fees and costs, as it is important to understand their impact upon your investment.
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Example of Retail FeesThis table gives an example of how the fees for the MDA service can affect your investment over a 1 year period implementing Blue Oceans Capital Investment Strategy – Retail.
You should use this table to compare this product with other MDA services.
Example Equity of $50,000 with a contribution of $5,000 during year
Contribution Fees Nil For every additional $5,000 you put in, you will not be charged.
PLUSManagement Fee
ANDCommission
ANDAnnual Flat Fee
ANDIndirect Costs (ETF MER)
1.00% p.a. charged daily
Commission cost for buying or cost for buying or selling ETFs & stocks charged by executing broker
Annual fixed cost, charged quarterly
0.24% charged by ETF issuers
For every $50,000 equity you have in the investment you will be charged $500 each year as a management fee, assuming average equity is $50,000 for the period. Management fee will be charged daily which is $1.98 per day. A
Estimated commission of 0.12% p.a. for every $50,000 equity you have in the investment you will be charged $9 each year as commission charged by IB. B
You will be charged $330 per annum and this fee is $82.50 per quarter. C
You will be charged $124 per annum by the ETF issuers.
EQUALSFees charged by HarbourSide Capital and executing broker
If you had an investment of $50,000 at the beginning of the year and you put in an additional $5,000 during the year, you will incur a fee of $963 each year comprising management fee of $500, commission of $9 and annual flat fee of $330C and $124 an indirect cost charged by the ETF issuer (MER). This is not a fee charged by HarbourSide Capital.
A The example assumes management fee are calculated on an equity of $50,000 with the $5,000 contribution occurring at the end of the year. Thus, management fee is calculated using the $50,000 equity. The fee formula for annualized percentage of net liquidation value applied on a daily is the fee percentage times the current NAV divided by 252. Assumption: Annualized percentage 1.00% of Net Liquidation. Previous day ending-equity $50,000. Calculation: 1.00%*$50,000/252= $1.98.B The example includes an estimation of commission of 0.12% p.a. based on an assumption that 15% of portfolio value is rebalanced each year. However, the actual commission (if any) will depend on a number of factors such as when you start your investment and if rebalance occurs in a year. Estimation of commission provided may not be a reliable indicator of future commission of MDA.C The exact amount of fees charged by the MDA Investment Manager may differ and are dependent on a number of factors, particularly the timing and actual performance of the MDA. Generally, the greater the performance of the MDA, the greater the management fee.
.
Example of Wholesale FeesThis table gives an example of how the fees for the MDA service can affect your investment over a 1 year period implementing Blue Oceans Capital Investment Strategy – Wholesale.
You should use this table to compare this product with other MDA services.
Example Equity of $50,000 with a contribution of $5,000 during year
Contribution Fees Nil For every additional $5,000 you put in, you will not be charged.
PLUSManagement Fee
ANDCommission
ANDAnnual Flat Fee
1.00% p.a. charged daily
Commission cost for buying and selling stocks charged by executing broker
Annual fixed cost, charged quarterly
For every $50,000 equity you have in the investment you will be charged $500 each year as a management fee, assuming average equity is $50,000 for the period. Management fee will be charged daily which is $1.98 per day. A
Estimated commission of 0.12% p.a. for every $50,000 equity you have in the investment you will be charged $9 each year as commission charged by IB. B
You will be charged $330 per annum and this fee is $82.50 per quarter. C
EQUALSFees charged by HarbourSide Capital and executing broker
If you had an investment of $50,000 at the beginning of the year and you put in an additional $5,000 during the year, you will incur a fee of $839 each year comprising management fee of $500, commission of $9 and annual flat fee of $330. C
A The example assumes management fee are calculated on an equity of $50,000 with the $5,000 contribution occurring at the end of the year. Thus, management fee is calculated using the $50,000 equity. The fee formula for annualized percentage of net liquidation value applied on a daily is the fee percentage times the current NAV divided by 252. Assumption: Annualized percentage 1.00% p.a. of Net Liquidation. Previous day ending-equity $50,000. Calculation: 1.00%*$50,000/252=$1.98. B The example includes an estimation of commission of 0.12% p.a. based on an assumption that 15% of portfolio value is rebalanced each year. However, the actual commission (if any) will depend on a number of factors such as when you start your investment and if rebalance occurs in a year. Estimation of commission provided may not be a reliable indicator of future commission of MDA..C The exact amount of fees charged by the MDA Investment Manager may differ and are dependent on a number of factors, particularly the timing and actual performance of the MDA. Generally, the greater the performance of the MDA, the greater the management fee.
.
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Additional Explanations of Fees and CostsDepending on which strategy you implemented on your managed account, HarbourSide Captal may charge a performance fee on returns generated in excess of 0% using a high water-mark. The high-water mark is calculated from the highest Net Asset Value (NAV) after a performance fee has been charged with the calculation performed every quarter and paid 10 days after each quarter.
NAV is equivalent to Equity which takes into account any floating profit or loss from open positions. The high-water mark is updated whenever
• a deposit or withdrawal is made• a performance fee is calculated.
Performance fees are separate from and additional to management fee.
1st January 2018
31st March 2018
30th June 2018
30th Sept 2018
Net Asset Value (NAV) $100,000 $110,000 $105,000 $118,500
Profit (loss) – $10,000 -$3,500 $13,500
Performance Fee – $1,500 $0 $1,500
NAV After Performance Fee – $108,500 $105,000 $117,000
High-water Mark $100,000 $108,500 $108,500 $117,000
Above is an example how HarbourSide Capital’s performances fees are calculated and charged. The above example assumes that $100,000 was invested. If the Managed Account had achieved a return of 10% for the quarter, your account would now be at $110,000. The performance fee for the first quarter would be calculated on the profit (the performance fee is 15%) therefore $1,500 is charged to the account. This now leaves the high-watermark at $108,500.
If in the second quarter of trading, the managed account made a net loss of $3,500, there would be no performance fee paid. However the high-water mark would remain at $108,500 as this remains the highest level after a performance fee has been taken.
In the third quarter the Managed Account returns to profitability, and returned $13,500 for the month, the equity would now be at $118,500. However since the high-water mark is at $108,500, the performance fee is only charged on the profit above the high water mark. i.e. 15% of $10,000 ($118,500 - $108,500) instead of 15% of $13,500.
Performance fees are charged on a pro-rata basis adjusting for the impact if any of additions or withdrawal of capital from the MDA.
How are management fees calculated?HarbourSide Capital has different rates of management fee on different strategies ranging from 0.63% p.a. to 1.73% p.a.
The management fee is calculated on a daily basis from the Net Asset Value (NAV). An example can be found below.
Management Fees Calculation
Average NAV of the year $50,000
Annual Management Fees 1.73% p.a.
Daily % (1.73%/252) 0.69%
Daily Management Fee (on each business day) $3.43
Commission and other fees charged by the executing brokerAs HarbourSide Capital has chosen to partner with Interactive Brokers Australia to execute investment positions, all clients are required to open an account(s) depending on the investment strategy you wish to proceed. Interactive Brokers Australia charges fees on the accounts such as commission, swap and buy-sell spread.
HarbourSide Capital does not request additional spread mark-up or commission mark-up on any strategies and we strongly encourage clients to read Product Disclosure Statements provided by them when you submit your account application. You can also access the documents via https://www.interactivebrokers.com.au
Amendment to Fees
The MDA Provider or MDA Investment Manager will give you at least 30 days prior notice in writing of an increase to the fees or charges. In relation to a change that is not an increase in fees or charges, the MDA Provider or MDA Investment Manager will give the Client prior notice in writing of a material change. The changes will take effect from the expiration of the notice period and the fees set out in the Financial Services Guide, the Statement of Advice and the Client Agreement – MDA Contract will be deemed to be automatically amended in accordance with the notice.
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TaxationWARNING: Investing in a managed investment scheme such as MDA service may have tax consequences.
HarbourSide Capital does not provide any tax advice and you are strongly advised to seek professional tax advice. The taxation implications of investing in MDAs can be complex and depend on a number of factors, including whether you are a resident or non-resident of Australia for taxation purposes.
A Service as Individual as youThe value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. Equity investment is subject to specific risks relating to the performance of the individual companies held and the market’s perception of their performance.
Equities are also subject to systematic risks such as general economic conditions, inflation, interest rates, foreign exchange rates and industry sector risks. In general terms, equities tend to be more volatile than bonds. Investments in capital raising markets may involve a higher element of risk. Investments in smaller companies may involve a higher degree of risk as markets are usually more sensitive to price movements.
This material should not be considered by the recipient as a recommendation relating to the acquisition or disposal of investments. This material does not contain sufficient information to support an investment decision and investors should ensure that they obtain all available relevant information, including the investment programme, before making an investment. HarbourSide Capital Pty Ltd (ACN 166 765 537) is a Corporate Authorised Representative (AR Number 448 907) of HLK Group Pty Ltd (ACN 161 284 500) which holds an Australian Financial Services Licence (AFSL 435746).
Any advice provided previous to a Statement of Advice (SOA) is general advice only and is based solely on consideration of the investment or trading merits of the financial products alone, without taking into account the investment objectives, financial situation and particular needs (i.e. financial circumstances) of any particular person.
Before making an investment or trading decision based on the advice, the recipient should carefully consider the appropriateness of the advice in light of his or her financial circumstances and should carefully review the PDS regarding the relevant financial product as provided by the executing broker.
Significant RisksAll investments carry risk. Different strategies can carry different levels of risk. Assets with the highest long-term returns may also carry the highest level of risk.
The value of investments and the level of returns will vary. Future returns may differ from past returns and past performance is not a reliable indicator of future performance.
Neither HLK Group nor HarbourSide Capital guarantee the success of the MDA, the repayment of capital or any particular rate of capital or income return. You may lose some or all of your investment.
The MDA Contract may not be suitable for you if you have provided limited or inaccurate information relating to your relevant personal circumstances and may cease to be suitable if your relevant personal circumstances change.
While the risks described below are not exhaustive, they are some of the most significant risks involved in investing in MDAs. Discussions, as well as the management of these risks, are detailed below:
Market RiskMarket risks refer to the changes in the price (market) of the assets held within the MDA that result in fluctuations in the value of your invested MDA.
Factors that drive price changes in invested assets include economic conditions, business confidence, government fiscal and monetary policies, etc.
In addition, asset classes may be impacted by specific risk factors, for example:
Equities – company earnings, industry outlook, analyst ratings, etc;
Fixed Income – credit ratings, interest rates, etc;
Currency – investor domicile currency vs. security denominated currency.
Each MDA is designed to be well-diversified across market sectors. The broad diversification of invested assets aims to provide a reduction in volatility of a specific MDAs’ value.
Also, the individual ETFs for each asset class are broad-based securities with holdings spread across wide spectrums of companies, industries, sector and geographical regions.
Additionally, the chosen universe of ETF’s for each MDA is filtered to represent only those instruments issued by the most reputable and largest providers (e.g. iShares, SPDR, Vanguard etc.). These securities have been chosen because of their history of delivering proven performance against their benchmarks.
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Counterparty RiskCounterparty risk is the risk of losses resulting from a counterparty defaulting on a financial commitment to one’s investment. Counterparties include brokers and banks. Invested assets are segregated in custody accounts designated for the exclusive benefit of the client by Interactive Brokers Group.
Strategy RiskStrategy risks refer to the risk that the investment processes of the MDAs do not successfully reproduce historical or intended results. This may have an adverse effect on the performance of the invested MDAs. The asset allocation process involved in the MDAs is entirely driven by the underlying quantitative model. The investment decisions are implemented via a strict framework of rules and limits.
The inputs to the model are continually updated and the dynamic nature of the investment strategy prevents any irrelevant or obsolete application of the underlying model.
The asset allocation model remains an intellectual property of the firm. The model is constantly being enhanced and updated.
Liquidity RiskThe HSC MDAs eschew illiquid and opaque securities in order to avoid liquidity traps present in similar structures. We include in our investment universe only ETFs issued by reputable providers, trading on major global stock exchanges.
While the MDA only invests in listed assets, under certain conditions the liquidity of a particular market or security may be restricted, thus affecting the performance of the MDA.
Lack of liquidity or market depth can affect the valuation of the MDA’s assets if it was required to reduce exposure at quoted prices
Key Employee RiskHSC employs specialist investment personnel who have responsibility for implementing the investment process. If key investment staff were to leave this would be de-stabilising to HSC and could lead to falls in the value of the MDA and in extreme circumstances could lead to the termination of the MDA. HSC actively develops alternative MDA strategies and is continually seeking new specialist investment personnel to mitigate key employee risk.
Business Continuity HSC views Business Continuity Management (BCM) as a fundamental part of its ability to protect its staff and fulfill its fiduciary responsibilities to clients.
HSC maintains Crisis Response and Business Recovery Plans to facilitate the management of any incident which has the potential to harm our staff, damage our premises or disrupt our business.
Currency RiskThe MDAs’ assets may be exposed to currencies other than Australian dollars. The value of such investments may be affected favourably or unfavourably by fluctuations in exchange currencies.
Legal Regulatory & Tax RiskChange in laws or their interpretations including, but not limited to, taxation and corporate regulatory laws, practice and policy may have a negative impact on the returns to investors.
Inflation risk The risk that the prices of goods and services will rise faster than the value of the investments.
Company specific risk Investment in a company’s securities is subject to risk of that particular company’s performance due to factors that are relevant and applicable to the company, the sector of the market to which the company belongs, or the equity market generally. Where it has exposure to that security it may affect the performance of the MDA.
Investment objective riskThe risk that an investor’s objectives will not be met by the MDA. Authority may be used to invest in assets which may not suit your objectives, needs and risk level or may be unsuitable from a social or ethical position.
Manager riskThe risk that the manager will not achieve its performance objectives or not produce returns that compare favourably against its peers. Past performance results are not necessarily indicative of future performance.
Concentration riskThe reliance on a group of securities, instruments or asset class that may significantly affect the performance of your portfolio.
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Product RiskThe risks for clients in utilising the MDA service also include those existent in non-discretionary dealings in exchange traded and over-the-counter securities and derivatives transactions. These risks are referred to in the Product Disclosure Statement (PDS) of the relevant financial product. The PDS should be carefully read and reviewed before acquiring the product. Derivatives carry a high level of risk to your capital and you should only trade with money you can afford to lose.
Volatility riskThe potential for the price of your portfolio to vary sometimes distinctly over a short period of time. The greater the volatility of the returns the more likely it is the returns will differ from those expected over a given time period.Risks can be managed but cannot be completely eliminated.
It is important to understand that:
l the value of your investment may go up and down;
l investment returns may vary and future returns may be different from past returns;
l returns are not guaranteed and there is always the chance that you may lose money on any investment you make; and
l laws affecting your investment may change over time, which may impact the value and returns of your investment.
Opening of accounts and withdrawal of fundsThe Statement of Advice provided to you by HLK Group in relation to the HarbourSide MDA service will contain a recommendation as to which of the following strategies are suitable to your current personal circumstances (i.e. which will be adopted by HLK Group in providing the MDA service to you). If you are unsure as to which of the following strategies will be adopted by HLK, please contact us using the details provided on the last page of this document.
Opening an Account
The first step for both retail and wholesale investors is to complete an MDA Application with HSC. We will review and contact you directly with the appropriate application process taking into account your financial circumstances, investment goals and objectives.
Each MDA strategy has a minimum initial investment. The minimum investment requirement may be waived at our discretion. We may also, at our discretion, establish higher minimum investment amounts or reject applications for investment in HSC MDA Service.
As we cater for both retail and wholesale clients, we are required under the Corporations Act to follow a process specific to the type of investor. If you are a retail investor for example, we are required to assess the suitability of this service to your personal needs and objectives and provide you with a Statement of Advice (SOA), or potentially a Record of Advice (ROA), taking into account your financial situation and objectives. The SOA will contain an opinion from HLK Group or HSC that the MDA client agreement (the “MDA Contract”) is suitable for your relevant circumstances and the basis for that opinion. The SOA will be provided to you with this IP and the MDA Contract. Your investment objectives of the MDA will be contained in the Statement of Advice.
Once you are presented the SOA or ROA you may elect to proceed by signing the authority to proceed (ATP), Consent to remuneration consent and the MDA Contract.
If you are a wholesale investor, SOA is not applicable and you only need to complete a Wholesale Client Certificate (WCC) and a Client Agreement to proceed.
You will also be required to complete the relevant application forms to open an account with our executing brokers. Once the account is opened, you will be provided instruction on how to fund your account.
HSC does not hold your funds. All funds are held by the executing broker under your application name or entity.
Should you wish to add more funds to your account, you can do this directly with the executing broker at any time.
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In order to protect client accounts from exposure to open positions during a withdrawal process, we require our clients to notify us via email or phone call two business days prior to requesting the withdrawal from the broker to allow for us to close outstanding positions in the MDA.
We can be contacted by email at [email protected]
Under clause 6.6 of the MDA Contract, the MDA Provider and/or MDA Investment Manager will, on an annual basis being at the end of each financial year, review the MDA Contract and Investment Program and provide advice to you about whether the MDA Contract continues to be suitable for you in light of your personal objectives, needs and relevant personal circumstances.
Under clause 4 of the MDA Contract, the MDA Provider and/or MDA Investment Manager’s discretion to trade on your behalf is unlimited. HarbourSide Capital keeps developing and refining its investment strategies to deliver better returns for clients. If we are going to implement a material change on any of our investment strategies (e.g. enrich its investment universe), a new version of the investment program and potentially a Record of Advice (ROA) will be provided to you. However, you may at any time by written notice to the MDA Provider and/or MDA Investment Manager limit the trading by reference to the markets to be traded, cash size of each position, number and type of shares, warrants or options traded per day, and other limitations as agreed in writing, except that you cannot limit the MDA Manager’s discretion to trade on your behalf to merely the time or price at which transactions may be effected. The MDA Provider and/or MDA Investment Manager has the right not to accept your instructions and if that is the case, your MDA account will be closed. Giving instructions in this way may result in losses to your assets under the MDA service.
Withdrawal of funds and Closing AccountAt HSC we strongly believe that your investment account is your property and that you should have the right to withdraw any or all of your funds at any time that you wish. With this being one of our core beliefs, and unlike many other managed investment funds, we don’t place restrictions on your right to withdraw your funds at any time (subject to you maintaining sufficient funds to satisfy your margin obligations). We do not charge any exit penalties or fees.
You are able to withdraw your funds directly through the executing broker’s funds withdrawal process. The broker will advise you of the time required to process the transaction(s) and any associated fees. Please refer to the PDS provided to you by the executing broker for more details.
In order to protect client accounts from exposure to open positions during a withdrawal process, we require our clients to notify us via email, prior to requesting the withdrawal from the broker, to allow us the opportunity to close all open or pending positions.
HarbourSide Capital Pty Ltd Suite 804, Level 8, 3 Spring Street Sydney NSW 2000
Phone: +61 (02) 9432 7850
www.harboursidecapital.com.au